Thursday, 9 April 2009

More on the Toothless FSA...

I’ve been really busy this week, and thought that other bloggers had covered the Dunfermline Building Society scandal, particularaly SUBROSA, Paisley Expressions and er... Terry Kelly. The scandal originaly being that the FSA did not bother to loan DBS money, but called in the administrators straight away, forcing a shotgun marrage with Nationwide.

However, the current issue of Private Eye has an interesting take on the situation, which is incredibly damming for the FSA, which as I’ve posted before seems content to go after the small fry but let the Goodwin’s, the McKillop’s and the Hornby’s of this country off the hook.

According to the Eye the FSA had always regulated building societies but had paid little attention, considering them a low risk area. The particularly damming section though talks of coercing building societies into markets that they have no knowledge of.

Confronted by ever-greater competition from the mutual’s turned banks and “shadow banks” such as the big US owned sub-prime/non conforming loan originators GMAC, GE Money and Lehman Brothers, the old line building societies were effectively encouraged by the FSA to “diversify or die”. The old model of boring residential mortgages no longer worked. The new model was to go into the exciting commercial property loans, loans to housing associations and buy-to-let and self-certified mortgages. All businesses that building societies like Dunfermline knew next to nothing about. But that didn’t stop them piling in.

The result? Over £1bn of high risk or bad loans built up in three years or less… Meanwhile the Fundamentally Supine Authority did not seem to understand or insist that Dunfermline needed more capital or bigger reserves for the greater risks it had taken on at the wrong price until it was too late.

Bearing in mind the does-what-it-says-on-the-tin name of the FSA, the Financial Services Authority. This shows that they should have been called the MANTSA (Move Along Nothing To See Authority). Under the FSA’s watch we have seen their failures result in near collapse for Northern Rock, Bradford and Bingley, Alliance and Leicester, HBOS, The Royal Bank of Scotland and the Dunfermline Building Society. I am sure that this list will be added to in the coming year. Come to think of it, reading that last part about taking on risks at the wrong price, echoes of the Royal Bank and ABN AMRO - Goodwin's folly. Hopefuly that's just coincidence and not the start of a pattern.

Of course, in the light of this lates failure of the FSA, this blows a rather large hole in the Government’s “light touch” regulation policy. Unfortunately, the question that should be posed is, what would the even more business friendly Conservative’s do?


blagger said...

Dunfumbling lent money to companies it didn't understand, bought crap mortgages from Lehman and GEMAC and tried to build an IT system it could sell, so competing with SAP/Unisys/IBM et al. Dunfumbling failed because the ex-CEO Dalziel was a red neck Scots idiot surrounded by a timorous beastie of a board of directors who did bugger all to protect their members.

It failed because it had crap leadership.

subrosa said...

Hi Allan. Could you lighten up your background just a wee bit or do something with the text colours. A bit difficult to read at length.

May it's just because my eyes aren't as good as they were :)

Good to know of another Scottish blogger regardless of political persuasion.

Allan said...

Blagger: I think you misunderstand. The FSA is/was supposed to regulate our financial companies, and try to regulate against the things which you mention Dunfermline doing... badly.

Your description of Dunfermline's ex-CEO Dalziel is becoming a familiar tale with these financial failures.

Allan said...

Subrosa - thanks for the comment. I'll see what I can do with the colours, though your eyes can't be as bad as mine.